Public Services International Research Unit (PSIRU)
www.psiru.org
Electricity companies in Latin America 2007
By
David Hall d.j.hall@gre.ac.uk
October 2007
A report commissioned by Public Services International (PSI) www.world-psi.org
PSIRU, Business School, University of Greenwich, Park Row, London SE10 9LS, U.K.
Website: www.psiru.org Email: psiru@psiru.org
Tel: +44-(0)208-331-9933 Fax: +44 (0)208-331-8665
Researchers: Prof. Stephen Thomas, David Hall (Director), Jane Lethbridge, Emanuele Lobina, Vladimir Popov, Violeta Corral
Public Services International Research Unit (PSIRU) is part of the Department of Economics and International Business in the
Business School at the University of Greenwich (www.gre.ac.uk). PSIRU’s research includes the maintenance of an extensive
database on the economic, political, social and technical effects of liberalisation, privatisation and restructuring of public
services worldwide, on the multinational companies involved, and on the policies of international financial institutions and
the European Union, especially in water, energy and healthcare. This core database is financed by Public Services
International (PSI – www.world-psi.org ), the worldwide confederation of public service trade unions. PSI and the European
Federation of Public Service Unions (EPSU – www.epsu.org ) commission many of the reports of PSIRU. PSIRU is a member of
the PRESOM and GOVAGUA networks, and coordinated the WATERTIME project, all funded by the European Commission.
PSIRU is teaching a new Masters in Public Admistration degree (MPA) at the University of Greenwich from September 2007.
PSIRU University of Greenwich
www.psiru.org
1.
INTRODUCTION.................................................................................................................................................... 3
2.
COMPANIES ........................................................................................................................................................... 3
2.1.
AEI .................................................................................................................................................................... 3
Table 1.
Table 2.
Table 3.
2.2.
AES ................................................................................................................................................................... 4
Table 4.
2.2.1.
AES in Argentina .....................................................................................................................................5
Brazil ........................................................................................................................................................ 5
Table 5.
2.2.2.
AES in Brazil ...........................................................................................................................................5
AES in Central America ........................................................................................................................... 6
Table 6.
Table 7.
2.3.
AEI: Power Distribution ...........................................................................................................................3
AEI - Power Generation ...........................................................................................................................4
AEI: Gas Distribution ...............................................................................................................................4
AES in Central America ...........................................................................................................................6
AES in other countries .............................................................................................................................6
ENEL/ENDESA .................................................................................................................................................... 6
Table 8.
Table 9.
Table: Endesa investment and employees by country in Latin America, 2006 ........................................7
Endesa subsidiaries in Latin America 2006 ..............................................................................................7
2.4.
IBERDROLA ........................................................................................................................................................ 7
2.5.
UNION FENOSA .................................................................................................................................................. 8
2.6.
SUEZ/ELECTRABEL/TRACTEBEL ........................................................................................................................ 8
Table 10.
Table 11.
Table 12.
Iberdrola subsidiaries in Latin America, 2007 ........................................................................................7
Union Fenosa subsidiaries in Latin America 2006 .................................................................................8
Suez Energy in Latin America ................................................................................................................9
2.7.
OTHER INTERNATIONAL INVESTORS................................................................................................................... 9
2.7.1.
CMS .......................................................................................................................................................... 9
2.7.2.
Duke Energy ............................................................................................................................................. 9
2.7.3.
EdF ........................................................................................................................................................... 9
2.7.4.
CDC/Globeleq .......................................................................................................................................... 9
2.7.5.
Kappa/D.C.Constructions/Israel Corporation ......................................................................................... 9
2.7.6.
LG&E/E.on ............................................................................................................................................. 10
2.7.7.
PPL ......................................................................................................................................................... 10
2.7.8.
PSEG/Sempra ......................................................................................................................................... 10
2.7.9.
Red Electrica Espana REE ..................................................................................................................... 10
2.7.10.
SN Power ................................................................................................................................................ 10
2.8.
LATIN AMERICAN COMPANIES ......................................................................................................................... 10
3.
ISSUES .................................................................................................................................................................... 10
3.1.
3.2.
3.3.
3.4.
3.5.
INTERNATIONAL COMPANIES ........................................................................................................................... 10
PRIVATE INVESTMENT AND PUBLIC RESTRUCTURING ....................................................................................... 11
PRIVATE EQUITY AND OTHER FUNDS ................................................................................................................ 11
PUBLIC SECTOR ................................................................................................................................................ 12
COMPENSATION CLAIMS AND ICSID................................................................................................................ 12
3.6.
CENTRAL AMERICA: CAFTA AND SIEPAC .................................................................................................... 14
Table 13.
4.
ICSID Compensation awards: gas companies in Argentina .................................................................13
NOTES .................................................................................................................................................................... 15
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1. Introduction
This report looks at the companies in the electricity sector in Latin America and some issues arising from
recent trends. The first section looks at :



The position of the largest private companies as at September 2007
Other international investors
The activities of Latin American companies
The second section discusses some of the issues:
 Trends in the involvement of international companies
 Private investment and public guarantees
 Private equity and other funds
 Public sector
 Compensation claims and ICSID
 Central America: CAFTA and SIEPAC
2. Companies
Although many multinationals remain in Latin America with stakes in a few companies, there are now
clearly six companies with a major presence. These are AES from the USA; AEI, a Cayman Islands based
fund holding the former assets of Enron; the three Spanish companies: Endesa, Iberdrola, and Union Fenosa;
and Suez.
2.1.
AEI
AEI (Ashmore Energy International) was created in 2006 by the UK private equity fund Ashmore
Investment Management Limited (Ashmore) to take over the former international operations of Enron. It is
based in the Cayman Islands. Ashmore owns 60%, and two USA-based private equity firms, Eton Park and
D E Shaw, each own 20%.1 In September 2006 AEI bought for $2.1bn2 all of the non-USA energy assets of
Enron, through the purchase of Prisma Energy International, which was created in 2005 to hold the
subsidiaries of Enron.3 AEI’s credit rating is poor, (a B+ rating from Standard and Poors), so it is expected
to to pay higher interest rates on its debts. 4
AEI holds companies operating in electricity distribution, electricity generation, and gas distribution. All of
this business is in Latin America, except for power stations in Philippines, Poland, and Turkey. It also owns
a number of gas pipelines and LNG facilities in Brazil, Bolivia, Colombia and Venezuela. In 2007 it sold the
Venzuelan gas operation to the state energy company PDVSA.5
In 2007 it has been increasing its holdings. It has bought out the former stakes of Globeleq in Nicaragua and
Guatemala,6 and the stake of PPL in El Salvador;7 bought the Peruvian gas distribution company Callida
from Suez;8 sold its Panamanian generating company Bahia las Minas to Suez; 9
Table 1.
AEI: Power Distribution
Country
Brazil
Company
Elektro
Panama
Elektra
El
Salvador
Delsur
09/03/2016
% owned
86.4
Elektro serves 223 municipalities in São Paulo, and five municipalities in
Mato Grosso do Sul, encompassing approximately 60,150 miles of
distribution and transmission lines.
Elektra serves approximately 300,000 customers and has 7212 kilometers of
high,medium and low voltage distribution lines and 12 substations.
Delsur is the second largest electricity distribution company in El Salvador
serving approximately 291,000 customers in the central-south region and has
6,000 kilometers of distribution lines.
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Table 2.
www.psiru.org
AEI - Power Generation
Country
Company
Brazil
CuiabáEPE
Dominican
Republic
Generadora
San Felipe
Guatemala
Nicaragua
%
owned
Generating
Capacity
480 MW
Fuel
Type
Natural
gas
100
180 MW
Fuel oil
PQP
100
234 MW
Fuel oil
Corinto
50
70.5 MW
Fuel oil
The Cuiabá Integrated Project consists of four
companies which, on an integrated basis, operate a
power plant in Brazil and purchase natural gas in
Bolivia or Argentina and transport it to Brazil for use as
fuel
A barge-mounted power plant located in the Dominican
Republic which sells power to Corporacion
Dominicana De Electricidad
PQP provides about 13% of Guatemala's installed
electric capacity. It sells 110 MW of capacity to
Empresa Electrica de Guatemala S.A under a power
purchase agreement. The remaining is sold under shortand medium-term sales agreements in the Guatemala
and El Salvador markets.
Corinto sells power to Disnorte and Dissur, distribution
companies owned by the Spanish group Union Fenosa.
In addition, AEI owns three power plants in Turkey, Philippines and Poland: Trakya (Turkey) 478 MW
Natural gas; SPC (Philippines) 116 MW, Fuel oil; and ENS (Poland) 186 MW cogen Natural gas.
Table 3.
AEI: Gas Distribution
Country
Colombia
Company
Promigas
Argentina
Metrogas
Peru
GNLC
Peru
Calidda
% owned
52.9
Promigas is the largest natural gas transmission company in Colombia
serving 1.4 million customers, representing 36% of the Colombian market .
Also involved in gas transportation and fuel distribution. Promigas’ has
recently entered the energy markets of Perú, Ecuador and Mexico.
81%
Argentina's largest natural gas distributor with 27% of total deliveries of all
gas distribution companies. Approximately 2 million customers in its
service area (Capital Federal and Sourthern and Eastern GBA)
Natural gas distribution company operating in Lima and Callao provinces
under a 33 year BOOT consession assigned in 2002 (extendable up to 60
years)
Cálidda is a natural gas distribution company serving Lima and Callao in
Peru. AEI and Promigas hold 60% and 40% ownership positions in Cálidda,
respectively. AEI owns 52.9% of Promigas.
2.2.
AES
AES is a global multinational electricity company, with sales of US$11.6 billion and 30,000 employees in
2006. It is based in the USA, but has a relatively small proportion of its business there. Half its total business
is in Latin America, where it has about 10,000 employees. It also operates in Europe, Asia and Africa. 10.
In 2002 and 2003 it faced major losses and responded by exiting from many subsidiaries. It abandoned major
investments in the UK (Drax), India (Orissa) and Uganda (a major hydro project, where there were
allegations of corruption); sold controversial operations in Georgia (where its finance director was murdered)
and Kazakhstan, and in Ukraine. In Latin America, by contrast, it increased its stake in many companies,
buying shares from other multinationals who are leaving: it was effectively forced to take over the shares in
four companies abandoned by its partner PSEG. It systematically renegotiated the debts of all its
subsidiaries in Brazil - after defaulting on the loans due from its subsidiary Eletrobras - and in Chile. In
Dominican Republic, where it owns both generators and distributors, it has been involved in bitter disputes
with the government: AES shut down its generators to force the government to make payments. In
Venezuela, AES promised Union Fenosa the right to buy some assets in Colombia in return for its agreement
not to enter a bidding war for the Venezuelan utility.11
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It has deliberately refinanced its operations in Latin America to reduce AES’ own debt, increase the
proportion of locally raised debt and increase the maturity of the debt.
In 2006 it had investments in Latin America in 9 distribution companies serving more than 8 million
customers and sales of $4.6 billion; and 48 power plants with a total capacity of 11,181 MW and sales of
$2.6 billion. AES has a ‘junk’ credit rating, so it has to pay higher interest rates for its debts, but in July 2007
this was being considered for upward revision by ratings agency Standard and Poor.12 AES continues to
expand, and in October 2007 announced it will borrow US$2 billion to fund further acquisitions. 13 New
power plants are being developed in Chile and Panama.
Table 4.
AES in Argentina
Parent
AES
AES
AES
AES
AES
AES
AES
AES
AES
Country
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
2.2.1.
Sector
Electricity distribution
Electricity distribution
Electricity distribution
Electricity generation
Electricity generation
Electricity generation
Electricity generation
Electricity generation
Electricity generation
%
90
90
90
88
AES Sul
Eletropaulo
Tiete
Uruguaiana
Electricity distribution
Electricity distribution
Electricity generation
Electricity generation
100
16.1
24.3
36.2
Employees
444
637
281
98
100
100
99
Brazil
Table 5.
AES
AES
AES
AES
Company
Edelap
Eden
Edes
San Nicolás
Central Dique
Rio Juramento
Hidroelectrica Alicura
AES Parana
CTSN
AES in Brazil
Brazil
Brazil
Brazil
Brazil
There have been major financial problems with AES’ Brazilian operations. There was a major restructuring
carried out in 2004.with the crucial support of the Brazilian development bank BNDES. One effect has been
to refinance operations using local capital: for example, the Sao Paulo distributor Eletropaulo raised
US$482m. in debt in Brazil in 2005.
The exercise has successfully restored the profitability of most AES operations, but this itself has now
become problematic. For example, Eletropaulo made net profits of 506mn reais (US$255mn) in the first six
months of 2007, more than double the 227mn reais from the first half of 2006. It has now been ordered by
the regulator, ANEEL, to cut prices by 12.7% 14. AES Tiete, a generating company, made net profits of
303mn reais in the first six months of 2007, but plans to distribute all the profits in dividends to shareholders,
without reinvestment, although AES Tiete has so far failed to fulfil its obligations to expand its capacity in
Sao Paulo state, and now wants to expand outside that state. 15 AES defaulted in 2003 on repayments of a
$2billion loan from BNDES which was made in 1997 to enable AES to buy Eletropaulo: AES now wants to
sell the company to Brazilian investors and use the proceeds to repay BNDES, which would still be expected
to accept a significant loss. 16
AES may use its new debt to buy the other half of Brasiliana, the power company of which it already owns
50%, when BNDES sells its holding: AES will be competing with Brazilian companies including CPFL for
this stake, but claims it has the right of first refusal.17
AES’ initial purchase of its stake in Eletropaulo in 1998 is now the subject of a court case and an
investigation. The court case is against 17 people including former presidents of BNDES accused of illegal
and irresponsible acts by granting a loan to AES to buy Eletropaulo, which put at risk "the financial health of
BNDES," AES subsequently defaulted on repayments and the loan was restructured in 2003. Jail sentences
of up to eight years are possible. The São Paulo state legislature has also investigated the privatisation,
including payments made by AES to the state treasury. 18
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2.2.2.
AES in Central America
Table 6.
AES
AES
AES
AES
AES
AES
AES
AES
AES
AES
AES
www.psiru.org
AES in Central America
Dominican
Republic
Dominican
Republic
Dominican
Republic
El Salvador
El Salvador
El Salvador
El Salvador
Honduras
Mexico
Panama
Panama
AES Andres
Electricity generation
100
Itabo
Electricity generation
48
Los Mina
Electricity generation
100
CAESS
CLESA
Deusem
EEO
AES Honduras
Merida III
AES Panama
Chiriqui hydro
Electricity distribution
Electricity distribution
Electricity distribution
Electricity distribution
Electricity generation
Electricity generation
Electricity generation
Electricity generation
75
64
74
89
55
100
49
In El Salvador, AES restructured the companies in 2003-2005, and in the process cut 142 jobs. In 2006 it
states that it reached a new collective agreement. In 2006 it had 947 employees in the country.
AES sees considerable business opportunities arising in central America because of the SIEPAC initiative to
create a single electricity market with as unified transmission grid, and guaranteed access to private
investors. The regional trade area, CAFTA, also requires the liberalisation of electricity sector.
Table 7.
AES
AES
AES in other countries
Chile
Colombia
Gener
Chivor
Electricity generation
Electricity generation
99
99
The Venezuelan government renationalised the distribution company Electricidad de Caracas (EdC), paying
AES $739 million in compensation.19
2.3.
Enel/Endesa
Endesa is the largest Spanish electricity company, and operates in 13 countries in total. It is the leading
private electricity multinational in Latin America, where it has been active since the early 1990s. 20 In
October 2007 it was finally taken over by the Italian electricity company Enel. It is not clear what effect this
will have on Endesa’s activities in Latin America.
It is the leading electricity supplier in Chile, Argentina, Colombia and Peru, the third electric utility in Brazil
and distributes power in five of the six main cities in the region (Buenos Aires, Bogotá, Santiago de Chile,
Lima and Río de Janeiro). In 2006 ENDESA had a total capacity of 14,317 MW and a total of 11.6 million
clients.. Endesa has subsidiaries in all three subsectors – generation, distribution, and transmission, including
a 60% stake in the major Chilean company Enersis.
Endesa emphasises the objective of further financial restructuring, by withdrawing some capital and
extracting dividends, and by reducing debts and using local debt to minimise currency risks. Endesa has
dropped its ICSID claims against Argentina.
Endesa owns 14% of Empresa Propietaria de la Red, which is developing the Siepac project, an electricity
interconnection connecting Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama through a
1,880 km 230 kV trunk line scheduled for completion in 2006. The estimated budget for this project is US$
320 million.
The map and table below show Endesa’s subsidiaries in Latin America in 2006. The number of employees
in each country have increased significantly since 2004, although Endesa’s holdings are largely unchanged.
One possible explanation would be if Endesa had started to reverse its use of outsourcing and casualisation.
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Table 8.
www.psiru.org
Table: Endesa investment and employees by country in Latin America, 2006
Country
Chile
Colombia
Brazil
Peru
Argentina
TOTAL
Employess
2739
1,602
3,335
1,146
3,091
11,913
% of Endesa investment in Latin America
36%
21%
25%
11%
8%
Source: Endesa Annual Report 2006
Table 9.
Endesa subsidiaries in Latin America 2006
Country/pais
Company/empresa
Argentina
Argentina
Argentina
Argentina
Argentina
Brazil
Brazil
Brazil
Brazil
Brazil
Chile
Chile
Colombia
Colombia
DominicanRepubli
c
Peru
Peru
Sector
Costanera
Dock Sud
Edesur
El Chocon
Yacylec
Cachoeira Dourada
Ampla
Cien
COELCE
Fortaleza
Chilectra
Enersis
CODENSA
EMGESA
CEPM
Electricity generation
Electricity generation
Electricity distribution
Electricity generation
Electricity transmission
Electricity generation
Electricity distribution
Electricity transmission
Electricity distribution
Electricity generation
Electricity distribution
Electricity generation
Electricity distribution
Electricity generation
Electricity generation
Edegel
Edelnor
Electricity generation
Electricity distribution
% owned by
Endesa
64.3
69.8
99.4
65.2
22.2
99.6
91.9
100
58.9
100
98.2
60
48.5
48.5
40
63.6
60
Source: Endesa Annual Report 2006
2.4.
Iberdrola
Iberdrola is the second largest electricity company in Spain, and one of the largest in Europe since it bought
the UK energy company Scottish Power and the USA company Energy East. It has a number of operations in
Latin America, in Bolivia, Brazil, Chile, Guatemala and Mexico. In the past it has attempted to reduce its
holdings in Latin America - it tried to sell Iberener in 2004, for example – but it has now made them
profitable, and also reduced risk for its own shareholders by refinancing operations with local capital in both
Brazil and Mexico..21
Table 10.
Iberdrola subsidiaries in Latin America, 2007
Country/pais
Bolivia
Bolivia
Brazil
Brazil
Brazil
Brazil
Brazil
Chile
Chile
Chile
Chile
Guatemala
Guatemala
Mexico
Mexico
Mexico
Mexico
Mexico
09/03/2016
Company/empresa
Elfeo (Cade?)
Electropaz
Celpe
Coelba
Cosern
Neoenergia (formerly Guaraniana)
Itapebi
Ibiner
Peuchen
Mampil
Essal
Eegsa
Trelec
Altamira III/IV
Enertek
Femsa-Titan
Monterrey
La Laguna
Sector
Electricity distribution
Electricity distribution
Electricity distribution
Electricity distribution
Electricity distribution
Electricity
Electricity
Electricity generation
Electricity generation
Electricity generation
Water
Electricity distribution
Electricity transmission
Electricity generation
Electricity generation
Electricity generation
Electricity generation
Electricity generation
%
59.3
56.8
40
42.6
9.5
39
40.5
95
95
95
51
39.6
39.6
100
100
100
100
100
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Mexico
Mexico
Altamira V
Tamazunchale
www.psiru.org
Electricity generation
Electricity generation
100
100
Its presence in Brazil is a group of distribution companies in the northeast of Brazil: Coelba, Cosern, and
Celpe, and a generating company, Neoenergia, which suppl;ies these distributors. The business is growing
and very profitable. In 2006 revenues in Brazil rose by 27.8% as a result of growing demand and price
increases; the gross profit margin increased to €592.4million. Coelba and Cosern have issued bonds worth
$143m and $40m respectively: this is local money borrowed by the local operators, who all (including the
third one, Celpe22) have their own independent credit ratings, not funds from Iberdrola.23 24 Iberdrola holds
39% of the generation company Neoenergia which owns a number of generators, all of the output from
which will be bought by Iberdrola’s distribution companies. The cost of this investment is also all derived
from the surplus of the Brazilian energy operations, not from capital from Spain.25
Iberdrola is the largest independent generator of electricity in Mexico, with six combined cycle plants with a
total capacity of 3,815 MW, and in 2006 produced more than 8% of the total energy generated in Mexico,
the great majority oif which is sold to the state utility CFE under 25-year agreements. In 2006 Iberdrola
carried out a complete refinancing, with the Mexican subsidiaries themselves taking on a new $1.7billion
loan - $500m. of which may be refinanced by a bond issue in Mexico – and using it to repay loans from the
parent company, Iberdrola, and loans from development banks which had been guaranteed by Iberdrola. The
net effect is to shift the debt onto the local companies, and raise more finance locally. This was designated
‘Latin American Power Deal of the Year” by Project Finance magazine. 26
2.5.
Union Fenosa
The Unión Fenosa Group is Spain’s third largest electricity company. In Latin America it is present as an
operator in electricity generation and distribution in Colombia and Panama; in the generation markets of
Mexico and the Dominican Republic; and in electricity distribution in Guatemala and Nicaragua. Its
distribution operations in Dominican Republic were re-nationalised in 2003 (with compensation). 27 Unión
Fenosa's total international business has installed generating capacity of 2,773 MW, and electricity is
distributed to 5.2 million customers.28
Union Fenosa’s profits in Latin America increased in 2006, and contributed over a quarter of the group
profits, due to price rises, growth in demand, and cuts in employment: “ The increased demand and the rate
revisions, together with the constraint on staff expenses and improvements in technical and operating
processes have allowed for an improved joint EBITDA of 15.5%, 26.7% of the total for the UNION
FENOSA Group” 29
Table 11.
Union Fenosa subsidiaries in Latin America 2006
Country/pais
Colombia
Colombia
Colombia
Dominican Republic
Guatemala
Guatemala
Mexico
Nicaragua
Nicaragua
Panama
Panama
Company/empresa
Electricaribe
Electrocosta
EPSA
Generadora Palamara La Vega
Distribuidora Eléctrica de Oriente
Distribuidora
Eléctrica
de
Occidente
Union Fenosa (Mexico)
Disnorte
Dissur
Chiriqui
Metro-oeste
Sector
Electricity distribution
Electricity distribution
Electricity
Electricity generation
Electricity distribution
Electricity distribution
%
71.5
71
62.6
100
92.8
90.8
Electricity generation
Electricity distribution
Electricity distribution
Electricity distribution
Electricity distribution
100
79.5
79.5
51
51
Source: Union Fenosa Annual Report
2.6.
Suez/Electrabel/Tractebel
Suez is merging with Gaz de France, to form a new and larger energy company. The water and waste
sections will be floated as a separate company. It is active in energy internationally, including Europe, North
America and Asia as well as Latin America. It has strengthened its Spanish connections, and now has an
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11% stake in Gas Natural.
In 2006 the international energy division had total sales of €6.2 billion, with 3,983 employees, 1050 in south
America. In Latin America it has major stakes in generating companies in Brazil, Chile, and Peru and
Mexico (as well as some gas distribution companies in Mexico), and has just acquired a generation company
in Panama. It also has investments in gas pipelines. Suez suspended investment in Brazil between 2002 and
2005, complaining that the current policies put Tractebel “in an unfair position by forcing it to compete with
state-controlled generators” 30
Its current strategy is that Brazil, Chile and Peru are seen as the core countries, with future growth possible in
Panama and central America.
Table 12.
Parent
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
Suez
2.7.
Suez Energy in Latin America
Country
Argentina
Argentina
Brazil
Brazil
Brazil
Brazil
Chile
Chile
Chile
Chile
Mexico
Mexico
Panama
Peru
Peru
Company
Litoral gas
Gasoducto Nor Andino
Cana Brava
Itasa
Ocirala Participacoes
Tractebel Energia
Electroandina
Edelnor
Distrinor
Gasoducto Nor Andino
Tractebel gas
Tractebel (Monterey)
Bahia las Minas
Enersur
TGP
Sector
Gas distribution
Gas transmission
Electricity generation
Electricity generation
Electricity generation
Electricity generation
Electricity generation
Electricity generation
Gas distribution
Gas transmission
Gas distribution
Electricity generation
Electricity generation
Electricity generation
Gas transportation
Percent
51
Other international investors
2.7.1.
CMS
CMS, which won a large compensation award from ICSID, is in the process of selling all its assets in Latin
America , comprising 895 MW of capacity in Argentina, a 20% stake in the Transportadora de Gas del
Mercosur gas pipeline linking Argentina and Brazil, to a USA investment fund, Lucid Energy for $180
million., and auction its other holdings.31
2.7.2.
Duke Energy
Duke Energy continues to hold stakes, notably in Brazil and peru. It has been seeking compensation through
ICSID over tax demands from the Peruvian government which it regards as unreasonable and in breach of
the investment treaty between the USA and Peru.
2.7.3.
EdF
Electricite de France (EdF) was a major multinational investor in Latin America from the mid-1990s. It has
now, in effect, sold all its stakes in subsidiaries.
2.7.4.
CDC/Globeleq
Globeleq, the subsidiary of the UK-state-owned investment fund, CDC, has sold all its investments in the
electricity sector in Latin America to a consortium of D.S. Constructions Limited of India and Israel
Corporation Limited, except for some minority interests sold to AEI. It continues to invest in new power
stations in Latin America.
2.7.5.
Kappa/D.C.Constructions/Israel Corporation
Globeleq’s Latin American holdings were sold to a consortium of D.S. Constructions Limited of India and
Israel Corporation Limited, except for some minority interests sold to AEI. The new owners are an Indian
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construction company and an Israeli investment fund. Apart from Globerleq’s former companies, they are
already investing in electricity in Peru through a joint venture, Kappa Generation, which is building the gasfired 180MW Kalpa power station in Lima. 32
2.7.6.
LG&E/E.on
E.ON subsidiary Louisville Gas & Electric (LG&E) is slowly exiting Argentina. In June 2007 it sold its stake
in Gas Natural BAN, but still retains stakes in gas distributors Gas Cuyana and Gas del Centro.33
2.7.7.
PPL
Pennsylvania Power and Light (PPL), a USA company, is selling its Latin American assets. N 2007 it has
sold Empresa Emel, a distribution company in Chile for $660 million to a local company, and has also sold
distributors in Bolivia and El Salvador.
2.7.8.
PSEG/Sempra
PSEG has just sold Electorandes in Peru, and is looking to sell its stakes in Peruvian and Chilean distributors
(where another uSA company, Sempra, is the other main shareholder). It owns three Venezuelan power
plants that serve industrial users, which the Venezuelan government plans to nationalise.34 PSEG also owns
SAESA, a Chilean holding company with 120 MW of generation and five distribution units serving 617,000
customers, which it says it has no plans to sell.
2.7.9.
Red Electrica Espana REE
Red Electrica de Espana (REE) is the Spanish national electricity grid operator. It is already present in Peru
and Bolivia, and says that it wants to become active in Brazil. 35
2.7.10.
SN Power
Statkraft Norfund Power Invest (SN Power), the Norwegian state-owned electricity company, has bought the
Peruvian generating company Electroandes in September 2007.36
2.8.
Latin American companies
The most significant group of Latin American companies remains the public sector companies which were
not privatised, or only partly so. In some cases, public sector companies have also expanded into other
countries, most notably Brazilian companies. There are also a few examples of private companies. Brazil is
the country with the most active group of public and private companies.
Electrobras in Brazil, remains the dominant generator of electricity in the country. Another Brazilian state
company, Petrobras, has invested in electricity and gas companies in Argentina, partly in partnership with
Enron. These have experienced problems, but Petrobras is having difficulty in extracting itself from these
investments. Another example is Cemig, the utility which remains majority owned by the state of Minas
Gerais, which has won a concession in Chile to build and operate transmission lines: it also wants to expand
within Brazil, with a target of generating 20% of all the electricity in the country. There are also private
companies active in Brazil , including CPFL and Andres Gutierrez.
3. Issues
3.1.
International companies
The holdings of the largest companies have remained fairly stable over the last three years, although there
have been exits and withdrawals by other major companies including EdF. Nevertheless, more
multinationals remain in Latin America than seemed likely a few years ago, when nearly all of them –
including the Spanish companies – announced their intention to retreat.
The main reason for their continued presence is simply that it was very difficult to find buyers, and so they
have been forced to stay. Renationalisation would have been an attractive solution for many of the
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companies, but governments have been constrained by borrowing limits and political considerations: it is
notable that the multinationals with investments in Venezuela are not protesting at the nationalisation of their
assets, and AES even seemed pleasantly surprised at the amount of compensation paid.
Despite more profitable conditions (as discussed in the next section), most would clearly still prefer to exit.
AES, for example, has already demonstrated that it is ready to abandon companies anywhere in the world
when they become unprofitable. This short-term perspective is damaging for employees as it makes
companies much less likely to negotiate long-term benefits such as pensions and training. The typical
experience of employment practices resulting from electricity privatisation in Latin America is casualisation
of workers and the extensive use of outsourcing, detailed in a previous PSIRU report.37
3.2.
Private investment and public restructuring
Northern investors are currently interested in investing in Latin American energy again. There has been a
global rise in private investment in electricity since about 2003, with financial investors playing an
increasing role. In Latin America, private investment has averaged $4.5billion per year since 2002,
concentrated mainly in Brazil and Mexico. Investors are most interested in investing in ‘greenfield’
investment in new plants, in the expectation of higher economic growth, population growth and extension to
new customers will lead to a greater growth in demand for electricity than in the north. In addition to the
growing demand for electricity, investment has been attracted by stronger local currencies and better credit
ratings for countries, which enable debt to be raised at lower interest rates. Some Latin American companies
now have shares traded on the New York and/or Madrid stock exchanges, such as CEMIG (Brazil) and
Edenor (Argentina): shares in Latin American utilities provide dividend yields of 5%-10%, above the return
on USA utilities.
The privatisation process itself often involved a great degree of financial support from the public sector. In
Colombia, for example, by 1995 the electricity company of Bogota, Empresa de Energía de Bogotá (EEB),
was heavily indebted to the government and multilateral banks. It was transformed into a plc, and the debt
was refinanced by the government injecting equity and writing off debt. It was then unbundled into a
distribution company (Codensa) and a generation company (Emgesa), and 48.5% of each company was sold
to a private company, in both cases to subsidiaries of Endesa and Enersis., with the stae-owned EBB
retaining 51.5% of each.
A similar pattern of state involvement can be seen in the last 5 years. Distribution and generating companies
privatised in the 1990s, which became unprofitable, have been financially restructured, with a lot of
investments being written off in the period 2001-2004. The cost of this was partly borne by the companies,
but partly by local agencies such as the Brazilian state development bank BNDES. The restructuring has
generally involved a greater use of local debt, and some local equity invested by industrial companies,
investment funds, and also by state-owned corporations. The increased role of local capital, whether public
or private, may help mitigate the impact of future short-term downswings in investmnent.
The role of the public sector in guaranteeing profitability remains central to all the private developments in
new independent power plants (IPPs). The level of electricity prices agreed with IPPs is crucial – for
example, Endesa’s planned 350mw TermoFortaleza gas-fired power station in Brazil was subject to
‘numerous’ renegotiation of tariffs over 4 years before the terms were agreed in 2006, assisted by an IFC
loan of $68m. 38
3.3.
Private equity and other funds
Northern banks, private equity funds, hedge funds and infrastructure funds are all investing in the sector. 39
Different types of investors have different implications. Pension funds and infrastructure funds may be
investing for stable returns over a long period. Other private equity and hedge funds are interested in rapid
growth and short-term capital gains, which can create further instability:
“Financial investors, unlike corporate investors, are skilled at generating significant returns
throughout the cycle…. The increased ownership of assets by investor types that do not hold the
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stability of the sector as a priority has catalyzed the upside of the cycle and may very well exacerbate
the downside.” 40
The most significant private equity operator is AEI, which is owned by three private equity funds: Ashmore
(UK), Eton Park and D.E.Shaw (both USA), which took over Enron’s former interests. At present, it is
expanding and consolidating its position. Another USA fund, Lucid Energy, has taken over CMS’ former
assets. Globeleq – which was a state-owned financial investor – has sold its operations to a consortium of an
investment fund and a construction company. Most other financial investment is focussed on specific
projects, for example the Conduit Capital fund, which invests in small hydroelectric projects in Latin
America; Globeleq also remains as a financial investor in new power plants.
There is also some activity by national and local investment funds. Peruvian pension funds have already
invested $1.2 bln (843 mln euro) in development and infrastructure projects, including electricity and gas
transmission projects as well as roads, ports, and housing, and has a further US$2 billion available to invest.
At present legislation allows only 20 pct of the total sum to be invested abroad, but this may change. 41 In
Argentina, the Dolphin and Pampa investment have been involved in buying companies from multinationals.
There is some reaction against private equity investors. In February 2007, ENRE, Argentina's energy
regulatory body, advised the government to block the sale by Petrobras of its 50% stake in Citelec, the
holding company that controls Transener, to U.S.-based hedge fund Eton Park for $54m.42
3.4.
Public sector
There is much less privatisation of existing companies, so the public sector is no longer shrinking and is
playing a stronger role in developments. Even in Colombia, where privatisation has been most encouraged,
half of distribution and generation remain in the public sector. The obvious form of public sector revival is
through renationalisation, which is happening in Venezuela. Another is through the strengthening of stateowned companies which survived the wave of privatisation and may now be considering expanding in their
own right. Another is through financial restructurings, as has been done most notably by the Brazilian
development bank BNDES.
One example of this process can be seen in the changing ownership of Light, the distribution company for
Rio de Janeiro, which was originally privatised in 1996, when BNDES, AES, , EdF, Houston Industries
(later renamed Reliant Energy) and Brazilian steelmaker CSN bought 50% of Light. Since May 2007, when
BNDES converting substantial loans into equity, Light has been owned by: Rio Minas Energia consortium:
54.2%; BNDES 31.4%; others 14.4%. The Rio Minas consortium itself consists of 4 equal partners: Cemig,
the state-owned power company of Minas Gerais; the Brazilian private company Andrade Gutierrez
Concessoes, and local investment banks JLA Participacoes and Banco Pactual.43 This new ownership is
local rather than multinational, and dominated by public sector entities.
The role of the public sector continues to be constrained by policy restrictions on public sector borrowing.
This factor prevents the Brazilian electricity company Electrobras from making major investment in its oown
right, so that much new development has to take the form of PPPs. In general in Latin America, much new
generating capacity is being developed through ‘greenfield’ generators built by the private sector.
3.5.
Compensation claims and ICSID
Multinationals continue to make compensation claims at international tribunals. These claims are made
principally under Bilateral Investment Treaties (BITs), either to the World Bank’s arbitration tribunal
(ICSID) or to the International Chamber of Commerce (ICC) or to the United Nations Commission on
International Trade Law (UNCITRAL). (For an account of the law and the mechanisms, see Ricardo Ortíz
(FOCO): The Bilateral Investment Treaties and the cases at ICSID, 2006
http://www.inpade.org.ar/documentos/FOCO_ICSID_engl_2006.pdf ; for news and developments see
http://www.fdimagazine.com/news/categoryfront.php/id/303/IN_DISPUTE.html ; for an investor’s
perspective see White and Case International Disputes Quarterly http://www.whitecase.com/IDQ )
In energy, most cases have concerned Argentina, with multinationals winning compensation in four cases
concenring gas companies.
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



www.psiru.org
In 2005 CMS was awarded $133m. compensation for their share of the losses of Transportadora Gas
del Norte (TGN), based on their claim that when Argentina refused to allow prices to be raised in
line with the dollar this was an act of ‘indirect confiscation’. ICSID also ruled that, after the
compensation is paid, CMS should give the Argentinean government its shares in TGN.44
In 2007 Enron won $140m. compensation for its shares in the losses of Transportadora Gas del Sur
(TGS). However, Petrobras, which was the majority shareholder, chose instead to pursue the
renegotiation of the contract for TGS.45
In July 2007, LG&E, the USA company now owned by E.on of Germany, was awarded $57.4million
compensation for its share in the losses of Gas Natural BAN, a gas distribution company. Gas
Natural, the Spanish company which is the majority shareholder, had however suspended its claim
for compensation earlier in 2007 in favour of renegotiation.46
In October 2007, Sempra Energy was awarded $172m. for its share of the losses of two gas
distribution companies, Sodigas Pampeana and Sodigas Sur.47 However, Camuzzi, the Italian
company which owns 57% of the shares, has decided to renegotiate the contract rather than claim
compensation. 48
Similar claims brought to ICSID in relation to electricity companies in Argentina have all now been
suspended in favour of renegotiation. This includes the cases originally brought by the major multinationals
AES, EdF, Endesa, and Enersis. 49
Table 13.
ICSID Compensation awards: gas companies in Argentina
Company
TGN
Gas
Natural
BAN
TGS
Sodigas
Claimant
CMS
LG&E/
E.on
Enron
Sempra
Country
USA
USA/
Germany
USA
USA
% owned
30
20
Award
$133m
$57.4m
Date
01/05/2005
26/07/2007
Majority shareholder
Claim
Gas Natural (Spain)
No
43
$140m.
$172m
22/05/2007
02/10/2007
Petrobras (Brazil)
Camuzzi (Italy)
No
No
Sources: see text
Two features of these claims are worth noting, as they suggest that compensation is most likely to be sought
by companies with no future interest in the operations:
 In each of these cases the compensation was awarded to a company which was a minority
shareholder, while the majority shareholder in each company decided to renegotiate the contract and
abandon the compensation claim. 50
 None of the companies claiming compensation have any continuing interest in the companies
concerned. CMS will automatically gives up its shares in TGN in exchange for the compensation:
o CMS sold all its other Argentinean investments in February 2007, and would have sold the
stake in TGN as well if it had not been covered by the ICSID ruling;51
o Enron is already bankrupt, and its shares in Ciesa, the holding company which owns 55% of
TGS, have been distributed to its creditors: Petrobras now holds all the voting shares in
Ciesa;52
o LG&E sold its shares in Gas Natural BAN to the majority shareholder, Gas Natural, one
month before it was awarded compensation;53
o Sempra remains as a shareholder in Sodigas , but stated in December 2006, 10 months
before the award of compensation, that it intended to sell its stake in Sodigas. 54
The rulings of ICSID have not been legally consistent: for example LG&E were denied compensation for the
period December 2001 to April 2003 because the tribunal accepted that this was a period of national
emergency; but CMS were given compensation for losses during that same period. 55
ICSID has no powers to enforce the awards, and the Argentinean government has stated that it will not pay
any of the claims lodged by utility companies against it in the aftermath of the 2001-02 economic crisis.56
Two energy-related cases against Argentina at the UNCITRAL, initiated by UK-based companies, appear to
have been abandoned. National Grid Transco, former shareholder on the transmission company Transener,
claimed US$151.3m., but sold its 50% stake in Citilec, which controls Transener, to an Argentinean
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investment fund Pampa;57 United Utilities, owner of 45% in Edea power distribution company, sought
US$100m, but withdrew the case and sold their stake in Edea in 2005. 58
3.6.
Central America: CAFTA and SIEPAC
Central America is moving towards greater liberalisation and privatisation, for two reasons.
The first is the growth of the Central American Free Trade Area (CAFYA), which now includes all the
countries in the region since Costa Rica narrowly voted in favour of joining CAFTA on 7 th October. 59
CAFTA requires the liberalisation of the electricity sector (which in Costa Rica is still run by an integrated
state monopoly, ICE).
The second is the development of the SIEPAC project for a unified electicity transmission grid joining all the
central American countries together, which will then be used as the physical core of a single integrated
electricity market.
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4. Notes
1
The Sunday Telegraph (London) September 10, 2006 Moulton set for debt float bonanza Private equity star will cash
in on soaring demand to participate in insolvencies
2
The Sunday Telegraph (London) September 10, 2006 Moulton set for debt float bonanza Private equity star will cash
in on soaring demand to participate in insolvencies
3
Legal Week Daily, October 16, 2006 Monday, 174 words, Charlotte Edmond
4
http://www.ashmoreenergy.com/newsflash/newsflash.asp?Mode=View&articleid=12&Category=All
5
http://www.ashmoreenergy.com/newsflash/newsflash.asp?Mode=View&articleid=28&Category=All
6
http://www.ashmoreenergy.com/newsflash/newsflash.asp?Mode=View&articleid=29&Category=All
7
http://www.ashmoreenergy.com/newsflash/newsflash.asp?Mode=View&articleid=20&Category=All
8
http://www.ashmoreenergy.com/newsflash/newsflash.asp?Mode=View&articleid=25&Category=All
9
http://www.ashmoreenergy.com/newsflash/newsflash.asp?Mode=View&articleid=16&Category=All
10
AES Reports Strong Second Quarter Results August 9, 2007
http://newsroom.aes.com/phoenix.zhtml?c=202639&p=irol-newsArticle&ID=1039188&highlight=
11
See PSIRU 2004 report at http://www.psiru.org/reports/2004-07-E-Latam.pdf
12
Business Week Online July 19, 2007: Making the Jump from Junk; S&P's latest list of companies and other issuers
on the cusp of a ratings upgrade to investment grade
13
Business Wire October 10, 2007: AES Prices Senior Unsecured Notes Offering; Size of Offering Increased to $2
Billion from the Previously Announced $500 Million
14
Business News Americas - English July 3, 2007: Aneel; Eletropaulo must reduce rates
15
Business News Americas - English August 16, 2007: AES Tietê; New investments hinge on govt nod
16
Valor Economico June 28, 2007: Brazil: AES settles with BNDES debts of US$1bil
17
Business News Americas - English October 10, 2007: AES could use bond proceeds to buy Brasiliana stake
18
Business News Americas - English February 9, 2007: Former BNDES chiefs accused in AES-Eletropaulo
privatization case
19
The Washington Post May 24, 2007: AES Profit Down 64% As It Restates Figures; Firm Cuts Income $43 Million
Since '04
20
Endesa Annual report 2004
21
Business News Americas-English 06/08/2004 Iberdrola puts Ibener up for sale
22
Business News Americas-English, May 5, 2004 Wednesday, S&P assigns BBB+ rating to Celp
23
Business News Americas-English June 3, 2004. Coelba files for US$143mn bond offer
24
Business News Americas-English May 6 2004. Cosern to issue US$40mn in local debt
25
Business News Americas-English May 28, 2004 Friday Iberdrola's Guaraniana starts Termopernambuco ops.
26
Project Finance February 2007: Latin American Power Deal of the Year 2006
27
Utility Week March 5, 2004 Manana, manana; Spain's Union Fenosa is a prime takeover target but it won't sell until
it feels the time is right.
28
Union Fenosa 2006 Annual Report
29
Union Fenosa 2006 Annual Report
30
Business News Americas-English December 24, 2003: Tractebel; New power model forces unfair competition
31
Global Power Report September 20, 2007: PSEG sells Peru generator to Statkraft; seeks buyers for Chile, Peru
utilities
32
Oil Daily July 26, 2007: Peru Launches New Power Plant
33
El Cronista June 19, 2007: Argentina: Gas Natural grows stake in Gas Natural Ban
34
Global Power Report September 20, 2007 SECTION: LATIN AMERICA; Pg. 13 LENGTH: 535 words HEADLINE:
PSEG sells Peru generator to Statkraft; seeks buyers for Chile, Peru utilities
35
Expansion September 20, 2007: REE EYES BRAZILIAN MARKET
36
Global Power Report September 20, 2007: PSEG sells Peru generator to Statkraft; seeks buyers for Chile, Peru
utilities
37
http://www.psiru.org/reports/2005-09-E-emp-latam.doc
38
Public Utilities Fortnightly February, 2007 International Section; Pg. 56 Can the upward swing in global power
infrastructure investment be sustained? by Daniel L. Blanchard
39
Public Utilities Fortnightly February, 2007 International Section; Pg. 56 Can the upward swing in global power
infrastructure investment be sustained? by Daniel L. Blanchard
40
Public Utilities Fortnightly February, 2007 International Section; Pg. 56 Can the upward swing in global power
infrastructure investment be sustained? by Daniel L. Blanchard
41
Latin America News Digest October 1, 2007: Peru AFP Mulls Investments in Infrastructure Projects
42
Latin Finance March 2007: Political Risk Revisited
43
Global Power Report May 24, 2007: BNDES returns as Light shareholder, swapping $364 mil debt for 31% stake
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44
La Nacion October 4, 2007: Argentina: TGN stake up for grabs
Thomson Financial News October 1, 2007: Petrobras Energia SA - Half-yearly Report
46
La Nacion July 27, 2007: Argentina: ICSID finds in favour of LG&E
47
Sempra Energy awarded $172 million in Argentine arbitration 02/10/2007
http://public.sempra.com/newsreleases/viewPR.cfm?PR_ID=2207&Co_Short_Nm=SE
48
El Cronista October 4, 2007: Argentina: Sempra still wants ICSID compensation
49
Investment Treaty News (ITN), May 16, 2006 http://www.iisd.org/pdf/2006/itn_may16_2006.pdf ;La Nacion April
23, 2007: Argentina: PAE, the latest of 14 firms to spare the government's blushes
50
Investment Treaty News (ITN), May 16, 2006 http://www.iisd.org/pdf/2006/itn_may16_2006.pdf
51
Global Power Report February 8, 2007: CMS signs deals valued at $1 billion to sell Asian, Middle Eastern, Latin
American assets
52
El Cronista January 31, 2006: Argentina: Enron sells 15% of TGS to D. E. Shaw
53
El Cronista June 19, 2007: Argentina: Gas Natural grows stake in Gas Natural Ban
54
Global Insight October 8, 2007: Sempra Awarded Arbitration Claim in Argentina; Business News Americas - English
December 27, 2006: Sempra to sell Camuzzi gas assets
55
Foreign Direct Investment (fDI) February 1, 2007: NEWS IN DISPUTE
56
Global Insight October 8, 2007: Sempra Awarded Arbitration Claim in Argentina
57
Latin Finance March 2007: Political Risk Revisited
58
La Nacion November 29, 2004: Argentina: Government prepares legal defense against debt swap;
El Cronista February 18, 2005: Argentina: United Utilities, Pioneer, drop cases against government
59
Financial Times (London, England) October 9, 2007: Costa Ricans vote in favour of Cafta trade pact with US
45
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